Stocks or Shares?

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Category : > Corporation

Posted On : Wed Aug 26th,2009

What is the difference between Stocks and Shares?
What does Stock certificate represent?
What are Authorized Shares?
What are Issued Shares?
What is the difference between Issued and Authorized Shares?
How many Shares are required to be authorized?
What is Par Value?
Can a corporation issue more shares than it is authorized to issue?
What is no Par Value Stock?
Is it necessary that a Stock must have a Par Value?
What is the difference between "par" and "no par" stock?
How do I calculate stock for my corporation?

What is the difference between Stocks and Shares?
In today's financial markets, the distinction between stocks and shares has been somewhat unclear. Generally, these words are used interchangeably to refer to the pieces of paper that denote ownership in a particular company, called stock certificates. However, the difference between the two words comes from the context in which they are used.

For example ownership of certificates in a particular company is referred to as "shares," or "owning shares." Ownership of shares makes you a shareholder in that particular company. On the other hand, ownership of certificates in multiple companies is referred to as "stocks." Ownership of stocks makes you not only a stockholder, but a shareholder for each particular company as well. So, if investors say they own stocks, they are generally referring to their overall ownership in one or more companies.

The common misconception is that stocks and shares are different things. In reality, they are the same thing but are referred to differently when talking about more than one company.

What does Stock certificate represent?
Ownership in a corporation is divided into shares and each corporation will decide how many shares should be issued and at what price they will sell their shares in the market. Only corporations have the right to sell stocks and issue stock certificates as proof of ownership. Any other forms of business such as sole proprietorships, partners or limited liability companies are not required by law to issue stock certificates or sell shares of the company.

Stock certificate is a proof of ownership of shares in a corporation. They imply that the holder of stock certificate has an ownership in a corporation and they convey certain rights and privileges to the person who holds them. There are many different forms of shares that are provided by corporations and all of them provide stock certificates as proof of ownership or equity in the corporation.

Having stock certificate permits you to attend an annual general meeting of the corporation, to vote on shareholder propositions, to vote for the officers of the corporation and to ask questions of the management of the corporation about any of their actions regarding the company.

What are Authorized Shares?
Authorized shares are the maximum number of shares that a company can issue. State law specifies that shares of stock in the corporation will be issued under the direction of the board of directors. But, in future, the shareholders can set, or limit, the number of shares the directors are "authorized", or allowed, to issue. A company usually authorizes a higher number of shares than required to be able to issue stock in the future.

What are Issued Shares?
Issued shares are the number of shares actually issued, or given out to shareholders by the board of directors. Only issued shares are counted for ownership purposes.

What is the difference between Issued and Authorized Shares?
The board of directors controls the issuance of shares. Authorized shares is the maximum number of shares that the board of directors are authorized to issue to shareholders. The board, usually does not issue all the shares at once, rather it issues shares in phases.

Authorized shares become issued shares when distributed to a stockholder. Shares that are not issued are usually called Un-issued authorized shares. Un-issued shares belong to the corporation and are not considered for shareholders' ownership percentages.

How many Shares are required to be authorized?
Every corporation must have at least one shareholder and one share of stock while filing a Certificate of Incorporation. A corporation can not be a corporation without at least one share of stock. You can have (authorize) as many shares of stock as you want, however, this may increase your filing fees in some cases.

What is Par Value?
A business corporation must sell shares of stock in order to capitalize the corporation, that is, provide the corporation with its own capital, separate from the money of its owners. The nominal dollar amount assigned to the shares or to any security by the issuer is known as Par Value of that share or security.

For a stock, par value is usually a very small amount that stands no relationship to its market price. There is no minimum or maximum value that must be allocated. Shares may also have "no par value," which means that the Board of Directors will assign a value to the stock in future course of business.

Can a corporation issue more shares than it is authorized to issue?
No, the corporation may not sell more shares than it is authorized to issue and it must receive consideration in exchange for its shares.

What is no Par Value Stock?
Stock that is issued without the specification of a par value indicated in the company's articles of incorporation or on the stock certificate itself.

Corporations issue no par stock for flexibility. If the corporation's stock has no par value, then there is no set "price" for the stock. In this case, the directors can raise the "price" of the stock when the corporation becomes more valuable. You see, with no par value stock, the directors decide how much must be paid for the stock each time it is issued to a shareholder.

Is it necessary that a Stock must have a Par Value?
No. stock can be authorized without par value. Generally, in case of small business corporations the stock are called "no par value stock" which merely means that there is no set amount of payment required to purchase the stock of the corporation. Each time stock is issued, the directors will decide how much must be received for the shares.

What is the difference between "par" and "no par" stock?
Par value stock has a stated value on its face. No par value stock has any stated value and its worth depends on what an investor is willing to pay.

How do I calculate stock for my corporation?
You can calculate the worth of your stock by multiplying number of shares with Par value.

You must include all classes of stock, common and preferred, when applying this formula.